Nate Reineke (00:13)
Hello, physician moms and dads. I'm Nate Renneke, certified financial planner and primary advisor.
Chelsea Jones (00:19)
I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family Financial Advisors.
Nate Reineke (00:26)
Alright Chelsea, four more questions. And I want all of our listeners to know that we are getting your questions and we really appreciate them. It's nice to answer listener questions along with client questions. So we got four more for you today.
Chelsea Jones (00:41)
All right, let's do it. The first question comes from a neurologist in Georgia. They said, I was revisiting my retirement benefits and I forgot that I had contributed to the 457 and not the 403B because my work matches quote 50 % of your 457 savings plan contributions up to 4 % of your eligible pay. I feel like I should max this out as well. Question mark.
Nate Reineke (01:04)
Mm.
Chelsea Jones (01:09)
We took the contribution to the 457 down to zero. β If we do max this out, would I contribute 8 % to get the maximum of 4 % match from work?
Nate Reineke (01:18)
Interesting. So they're saying basically they're saying I'm getting a match should I contribute to the 457 but that makes an assumption that β They shouldn't so first let's just start with Chelsea like When shouldn't people in general when shouldn't physicians contribute to a 457?
Chelsea Jones (01:18)
Yeah, this is an interesting question.
Yeah, so in general, you should not contribute to a 457 if it's a non-governmental 457 plan.
Nate Reineke (01:47)
Right. Because there's a risk of losing it,
Chelsea Jones (01:51)
Yep. There's a risk of losing it. there's also a risk of it getting spit out if you leave that work and you have to pay taxes on the whole balance. β so there's a couple of, a couple of drags there, reasons why we don't recommend putting money into the non-governmental plan. If it's governmental, the rules basically, it acts as a similar to a 403B. You can transfer it, to a new plan.
Nate Reineke (01:58)
Uh-huh.
Mm-hmm.
Chelsea Jones (02:18)
you can there's no risk of forfeiture yada yada but non-governmental β generally we recommend not contributing to those and that's what she's talking about here her employer is a non-governmental employer and i had originally told her don't contribute to this plan because xyz
Nate Reineke (02:19)
Mm-hmm.
Yeah, so
that but just just to be clear, if basically if this hospital goes bankrupt, which you and I talk to people that are like at the top level of their hospital, they're like the top dog. And they're like, man, health care is rough. You know, we were really close to being in the red. So imagine you work for a hospital like that and they go under. Well, then your 457 evaporates.
Chelsea Jones (02:40)
Mm-hmm.
It's rough out there.
Nate Reineke (03:02)
And with a 403b or 41k, that is your money, your vested, or at least after you've waited the waiting period. So generally, non-governmental don't contribute, but this person gets a match. So what say you?
Chelsea Jones (03:03)
Mm-hmm.
Definitely complicates the decision because it's hard to give up the free money. I mean, you have to put in, so she's correct. It's a 50 % match up to 4%. So generally, so this wording could be taken one of two ways because she asked, do I contribute 8 % to get the full 4 %? Or the other way that you could read this is do I contribute 4 % and they match too?
Nate Reineke (03:21)
Yes.
Mm-hmm.
I Yeah.
Chelsea Jones (03:47)
you know, and the way that
I read it, 50 % of your 457 contributions up to 4 % of your eligible pay, I would read that and I would understand it as the latter. So you put in 4%, they'll match half of up to 4 % that you put in. So you contribute four, you get two from your employer. And like I said, it's hard to give up that match. I definitely wouldn't max it out. β
Nate Reineke (04:16)
Mm-hmm.
Chelsea Jones (04:17)
But I could see putting in your 4 % to get that extra 2 % from your employer. β But it does come with the risk of potentially losing that money if the hospital were to go bankrupt. It comes with the risk of you switching jobs and potentially having to take all the money out of the plan and pay taxes on it. β
Nate Reineke (04:41)
Now, now let's let's I want to be clear about that. The risk of the money coming out and you paying taxes on it is as much or the β consequence of that is much smaller. If your employer is giving you a whole bunch of money, you know, that basically there there is if it's all your money and you have a.
Chelsea Jones (04:54)
Mm-hmm.
Nate Reineke (05:05)
really good. There's a really good chance that you don't work here the rest of your life. Even if the hospital is healthy, you're just going to pay a whole bunch of taxes on it. You might even bump yourself up into a worse tax bracket because of that. know, like let's say there's a couple hundred thousand dollars in there and all of you're bumped up in a terrible tax bracket. It would have been better for you not to put the money in there in the first place. But if your employer is giving you the cash matching
Chelsea Jones (05:24)
Mm-hmm.
Nate Reineke (05:31)
then that kind of goes away. It doesn't take away the risk that the money could disappear if the hospital went bankrupt. everyone, again, this will be forever. People will wonder why we make this recommendation. This is a risk reward. You're risking the money going away. The reward is you get to defer taxes. We love deferring taxes, but the majority of the time,
Chelsea Jones (05:47)
Mm-hmm.
Nate Reineke (05:59)
Neither of those happens and the money gets distributed out and you just pay the taxes anyways. So since you pay the taxes anyways, it's not worth the small amount of risk that the company goes under. That's our general feel of the situation and we have seen it. We have seen the... Yes.
Chelsea Jones (06:13)
Mm-hmm.
Yeah.
We've seen it too many times. It's like
the, you know, the person who's really obsessive about blowing out all of the candles because their house burned. Like we've seen the house burn too many times. We're going to be insistent about blowing out this particular candle. So.
Nate Reineke (06:28)
Uh-huh.
That's right.
Yes.
So what do you think? β It sounds to me like this is you have to do your own risk reward analysis. It's a little bit of a gut check, but do you think that generally they should if they get a match?
Chelsea Jones (06:52)
I would say generally if they get a match, contribute just enough to get the match. But no more. Yeah.
Nate Reineke (06:59)
Mm-hmm. think I'm with you. I have seen
one of these and they didn't have to contribute even as much as this listener's question β to get a pretty sizable match. So the risk reward was great. I think they had to contribute only like five thousand to get ten thousand. It was really honestly just strange. I've never seen it before. But you know to me the yeah they could go bankrupt and you could lose the money but
Chelsea Jones (07:19)
Mm-hmm.
Nate Reineke (07:28)
over a five-year period, you put in $25,000 and the account has, gosh, $70,000 without any growth. It just seemed like you couldn't pass it up. So you have to do your own unique analysis, but free money is hard to pass up.
Chelsea Jones (07:47)
Okay, our next question comes from an OBGYN in New Jersey. β Straight to the point question. Do I actually need life insurance?
Nate Reineke (07:58)
Yes. So β this is your client, Chelsea, but I'm the insurance person around here. Can you tell me a little bit about why, we don't normally get this. So why did this person ask this question?
Chelsea Jones (08:10)
Yeah.
So this person asked this question because, β there's, she doesn't have any children. β her no debt other than their mortgage. They do have a mortgage that she shares with her partner. she receives a hundred thousand dollars of free life insurance through her work. And when she asked her partner about, Hey, if I weren't here, would you be able to pay this mortgage?
Nate Reineke (08:18)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Chelsea Jones (08:40)
He was like, yeah, no problem, basically. And so in her mind, she was like, well, do I actually like, do I actually need this insurance if, if I feel like I don't need that money to cover expenses if I'm not here? β
Nate Reineke (08:42)
Yeah.
Mm-hmm.
Yeah.
β Well, let me ask you a few questions. So β do they ever plan on having children?
No, okay. We'll leave it at that. Lots of reasons that could be the case. Is their partner their spouse?
Chelsea Jones (09:14)
I'm not legally married, no. And no plans too, as far as I know.
Nate Reineke (09:15)
not legally married.
Okay. β Does their partner make a decent amount of money? It sounds to me like they're not a physician. I mean, do they have a good income? They do. Okay, so they have a good income. There's no children to take care of. β Do you know how much the mortgage is?
Chelsea Jones (09:28)
They do.
I want to say it's under 400k now.
Nate Reineke (09:39)
Okay,
so a small mortgage. β So a small mortgage, partner could certainly afford that. β How old are they? Do they have a good amount of savings?
Chelsea Jones (09:42)
Mm-hmm.
They do have good amount of savings. Their plan is on track. β
Nate Reineke (09:57)
So like over a million bucks?
Okay. So I almost never recommend no insurance, but the reason to have life insurance is to replace an income. And so you just have to ask yourself what would need to be replaced. You don't need money to take care of the kids. You don't need money to pay for college. β You have a million dollars. So, you know, that's going to cover the $400,000 mortgage plus some.
Chelsea Jones (10:19)
Mm-hmm.
Nate Reineke (10:27)
I imagine their partner has a good income so they can save. And so this comes down and they have $100,000 from work, is sort of like, β it's kind of whatever, but it's something. Yeah, four to three, it just becomes super reasonable. to me, I still would consider getting it because it's so cheap.
Chelsea Jones (10:39)
Yeah, I whittle it down from four to 300, the mortgage.
Nate Reineke (10:54)
The amount of insurance they need is so cheap, it would make me feel better. But the fact that they're even asking this question makes it seem like it's not really a concern of theirs. They're not married. So what really obligations do you have to pay even a $50 a month policy? So this is a question of, I think generally as financial planners don't want to say no to this.
Chelsea Jones (11:15)
Mm-hmm.
Nate Reineke (11:24)
No, you don't get it. But it's so cheap because it's so cheap. And obviously, the partner would like to have 500k, a million bucks if their partner died. So I actually don't think it is totally necessary. But I would recommend that they maybe go through the painful process of like an exam or see how much it is. And then once they see that the price isn't so scary, β consider a small policy.
Just a small one. β If they still don't like it, I can't, it's hard. Essentially, they're self-insured. They're self-insured. They have a million, maybe close to $2 million partner β has a good amount of money, or makes a good amount of money, probably has their own savings as well. It doesn't seem like it's totally necessary.
Chelsea Jones (11:54)
Mm-hmm.
Okay. I recommend a conclusion we rarely come to, but there's an exception to every rule, Okay. The next question comes from a double doctor family in Florida. They said, should we have our home purchase fund invested in the stock market?
Nate Reineke (12:26)
Yeah, that's true.
Mm-hmm.
I was shocked to get this question. β I wasn't shocked to get this question a few years ago because maybe even five years ago because everyone seemed so bullish on the stock market. β I gave the same answer but I wasn't shocked. This time, mean, there is global conflicts all around the world, US and Iran being one of them. β The valuations on AI companies are getting worrisome.
Chelsea Jones (12:43)
Yeah.
Right.
Nate Reineke (13:11)
β So highly, highly valued, β not meeting their earnings expectations. There's global trade tensions, β a lot of uncertainty about interest rates. β There's a hundred factors out there, thousands of factors that we can't see and will never fully be able to conceptualize in our brains β of why short-term volatility in the stock market feels like a foregone conclusion.
Chelsea Jones (13:18)
Mm-hmm.
Nate Reineke (13:39)
So β we shouldn't really care about those things in the next 20 to 30 years. But when you only have 20 to 30 months before you need the money, this is not a risk worth taking. I just don't think it's a prudent thing to do. You need this money, you're going to buy a house, you cannot withstand a
Chelsea Jones (13:50)
Right.
No.
Nate Reineke (14:07)
20, 30, 40, 50 % decline in the stock market. But that's not really a big deal. Well, I know it hurts, but it shouldn't really concern you if you're going to spend this money in 30 years because a lot of this too shall pass. And even with the AI companies being overvalued, there's at least I imagine there's a couple of those companies that are going to do really well and meet expectations.
Chelsea Jones (14:23)
Right.
Nate Reineke (14:37)
β We continue to invest but not with money we need in the next couple of years.
Chelsea Jones (14:42)
Yep. That makes sense. Because there's, yeah, you don't want to lose your house money. And if it's invested in the stock market, you, there's a good chance you could.
Nate Reineke (14:53)
Yeah, think about the regret you would have if you saved for a few years to buy a house and all of sudden you just couldn't. And by the way, all so that you can eke out a few extra percentage points, like if the stock market does well, let's say it does like average and you get a 10 % return. So you got an extra 7 % on your down payment. That's probably $200,000. Like, did that even move the needle?
Chelsea Jones (15:12)
Mm-hmm.
Nate Reineke (15:21)
Did you get a bigger house? Your mortgage payment would go down by like $20. But you're risking, you're not having a down payment. There's real life results here that you have to consider. I've never seen anyone make that choice once they really thought about it that way.
Chelsea Jones (15:27)
Yeah.
Right. Yeah. Talk about risk return conversation there. There's a lot of risk, but not a $20 a month return. Not worth it.
Nate Reineke (15:47)
Yeah.
That's always
the worst when you're doing a mortgage calculator and you're like, what if I put another 50,000 towards this thing and it like does nothing? You're like, gosh, I got in the wrong business. I wish I could lend out a million bucks and yeah, no, it's I would stay away. And this goes for anything. This goes for anything. You need that money in a few years. β It's not you don't have an investable time horizon.
Chelsea Jones (15:58)
you
That's so annoying.
Yep. Okay. Our last question comes from a double doc family in Massachusetts. They said, currently have an adjustable rate mortgage that is coming up on its variable rate period. So we're looking at refinancing. Does it make sense to pay the balance down so that we're below the conforming loan?
Nate Reineke (16:40)
Yeah. β
This is not a question you can answer in theory. You actually have to go get a quote. so mortgages, there's a lot to know about them, but in your specific situation, you got to get a quote. And so I'll answer this question here in a second. But the way that you should do this is you should shop your rate around and you should say,
Chelsea Jones (16:50)
Mm-hmm.
Yep.
Nate Reineke (17:09)
These are, this is what I can do, which most people can't do any of this. They're like, I need a 30 year mortgage and I want to put the least amount down possible. Well, that's not you. You can put 10 % down, can put 15%, you can put 20%. You can manipulate this a lot of different ways. So let's say you got to the 20 % down and that didn't get you below the jumbo and you had to put 30 % down. So you could say, you go to your mortgage broker, you could say, let me see a 30 year rate, a 15 year rate on a 20 % down loan.
Chelsea Jones (17:16)
Mm-hmm.
Nate Reineke (17:39)
Then let me also see a 15 and a 30 year rate on a 30 % down loan that gets you below the jumbo loan rate, or sorry, the jumbo loan amount. And then you might even say, and also, hey, let me see those arms again. Right, and that's uncomfortable because you're doing this right now. But for many people that I'm seeing their arms come due, they're seven year arms. So you've paid this loan down for seven years. Imagine if you paid it for another seven years.
Chelsea Jones (17:39)
Mm-hmm.
Yeah.
Nate Reineke (18:08)
what the actual balance of that mortgage would be. It might be half of where you started. So even if the rate did adjust upward by a bit, it's on half the balance. And so, you you can consider all these things. They're all tools to get you to the desired results. So this is what you do. This is you actually do. You define the desired result. Then you go get quotes.
Chelsea Jones (18:13)
Mm-hmm.
Mm-hmm.
Nate Reineke (18:36)
You don't work with the mortgage broker that forces you to apply for an application and pay an application fee in order to see the rates. Most of them will want to do that. It's because they don't want to do the work and β they don't want you really shopping around. But that's not what you're going to do. You're going to shop around. Okay. So you go shop around. You look at the options and you just compare. And if it's like, you know, if you see a jumbo loan rate
Chelsea Jones (18:53)
Mm-hmm.
You gotta.
Nate Reineke (19:05)
that is 10 bips, 0.1 % worse than the third year, and it costs you another $50,000 to get there, it's not really worth it. But if it's...
Chelsea Jones (19:19)
Yeah, it's going to be a long
time before you recoup that $50,000 with a 0.1 % rate difference.
Nate Reineke (19:23)
That's right.
Yeah. And it's not exactly like a recoup because you're paying down the mortgage, but it's all it's all things to consider. Like, do you need the money? Are you raiding your emergency fund to get down by point one? Now, let's say it's point two five or point five. And it's like, wow, it's a big rate. I'd be flipping over couch cushions and finding quarters to get to that. Right. So it's just unique to everybody.
Chelsea Jones (19:37)
Right.
Nate Reineke (19:51)
situation. It's also unique to where interest rates are. Interest rates change all the time. During COVID times, Jumbo loan rates were better than conventional loan rates, but that was really weird. That doesn't make any sense. We had an inverted yield curve. As of right now, I am seeing Jumbo loan rates be a quarter of a percent worse. It's probably worth it.
Chelsea Jones (19:55)
Mm-hmm.
Mm-hmm.
Nate Reineke (20:15)
for a lot of people unless it's an enormous amount. then if it seems worth it but you just can't swing it, it's not the end of the world. You get a mortgage rate that you can afford and look to refinance sometime in the future.
Chelsea Jones (20:29)
Because another thing to remember too is most of the families that we work with pay extra towards the principal. So you're going to most likely be paying it down faster than 30 years anyway.
Nate Reineke (20:36)
That's right.
That's
right. Yeah, and that goes to the arms too. Sometimes I'll see people get an arm and they live in a part of the country where houses are still only half a million dollars, which is remarkable. I wish. And so them getting like taking an arm, a seven or a 10 year arm, you might have this thing down to a hundred grand by the time 10 years is up. Like take the arm, take the lower rate and if it adjusts from
Chelsea Jones (20:44)
Mm-hmm.
Right.
Nate Reineke (21:09)
you know, 5 % to 6 % or even 6.5%, but it's only on 100 grand, you made money, mostly I didn't do the math, but most likely you made money because you saved 1.5 % or 1 % on that rate for the meaningful 10 years where your balance was the highest.
Yes, so mortgage questions. They're coming in fast and furious. Ask Chelsea or I about them and we will help you do this analysis. Thank you everybody for listening. If you like the show, be sure to subscribe so you don't miss an episode when we release it. You can also give us a rating. We would appreciate that. You can do it wherever you listen. Spotify, Apple, or all of them. If you'd like to work with us, you can visit PhysicianFamily.com, schedule an interview, and if you aren't ready for that, we
love to hear your questions at podcast at physicianfamily.com. Until next time, remember, you're not just making a living, you're making a life.
